Sturgeon Refinery will provide good value upgrading Alberta bitumen, head of North West Upgrading says

REDWATER – North West Upgrading Inc.’s Ian MacGregor is taking pains to correct a claim in an academic paper that the Alberta government will pay $63 per barrel to process bitumen at the Sturgeon Refinery.

The actual processing cost will be less than $35 per barrel and the business case for the refinery remains strong, MacGregor, North West Upgrading’s president and CEO, told an audience of business people and politicians Friday.

“I’m an engineer,” he said after his speech at Redwater Mayor Mel Smith’s annual breakfast.

“It’s important to me that the numbers are correct. We felt that the numbers were so far out that we had to say something.”

The $8.5-billion refinery is being constructed in Sturgeon County, 45 kilometres northeast of Edmonton. The current construction workforce of more than 2,100 will expand to 5,000 by the summer of 2016. The refinery is on schedule to produce diesel fuel by late fall 2017.

It will be owned by and operated by the North West Redwater Partnership, an alliance between North West Upgrading Inc. and Canadian Natural Upgrading Ltd., a subsidiary of Canadian Natural Resources Ltd.

The Alberta government will provide 75 per cent of the bitumen under its bitumen-royalty-in-kind program. Canadian Natural will supply the remaining 25 per cent.

The refinery will produce ultra low-sulphur diesel fuel and other products including naphtha and diluent.

In June 2014, six months after the construction cost estimate was bumped from $5.7 billion to $8.5 billion, the province revealed it will pay $26 billion in processing fees, up from the previous estimate of $19 billion.

In a paper published last month by the University of Calgary’s School of Public Policy, former Alberta finance minister Ted Morton called the refinery a “multibillion-dollar boondoggle.”

Morton’s paper said fees paid by the government would amount to an uneconomic $63 per barrel, based on processing 50,000 barrels per day of raw bitumen.

North West Upgrading issued a rebuttal April 17 that wasn’t widely picked up by news outlets.

MacGregor said Friday the refinery will process 78,000 barrels a day of diluted bitumen at a per-barrel cost of less than $35.

“You just have to go to the pump and see how valuable it is,” he said. “Even though the oil price — the feedstock price — has declined, the diesel price has actually more than offset that decline. So it’s really important to think we’re making diesel, we’re not making synthetic crude oil.”

The Alberta government would see $200 million a year in net profit on the bitumen-to-diesel conversion based on average prices in the last four years, MacGregor said. Even a calculation using 2015’s lowest prices to date would have the province earning $150 million, he said.

He noted the government will be able to continue using the refinery at lower cost after the toll fees have been paid.